Russia may lose over $50 billion should Cyprus default

e4cecyprus Russia may lose over $50 billion should Cyprus default

Earlier in February Moody’s said that the scale of the country’sdebt may force its government to give in to the most radicalmechanisms of slashing the debt, “including private-sectorlosses on Cypriot debt.”The first major risk for Russia is based on its banks’ massivecredit exposure to Cyprus. The amount of cross-border loans Russianbanks issued to Russia-related companies registered in Cyprustotals between $30 billion and $40 billion. According to Moody’s analyst Eugene Tarzimanov “a potentialCyprus moratorium on external payments could block loan repayments[of up to $53 billion] to Russia, leading to some asset-qualitypressures.” Most Russia’s largest banks are somehow involved in creditingCyprus-based businesses. There are also indirect risks for Russian banks, associated withthe Russian corporate deposits in Cypriot banks. An estimated $12billion were held on deposit with Cypriot banks at the end of lastyear. Moody’s latest estimates say now this figure is approaching$19 billion. If Cyprus’ banking sectors defaults and the corporate depositsare frozen or used to help save local banks, Russian banks maysuffer major deposit losses. According to the agency Russia mayalso not be able to repatriate these funds, which may affect theservicing of the bank debt back in Russia. The next risk is in amending Cyprus’ corporate tax policy.Cyprus is widely regarded as tax haven for the Russian bigcompanies, as with its 10 percent it has one of lowest corporatetax rates in Europe, vital to attracting foreigninvestment. If Cyprus agrees to fulfill the requirements of the “Troika”(EU, IMF and European Central Bank) set as a condition for them toissue a 17 billion euro rescue loan, the tax rate may soon beincreased from 10 percent to 12.5 percent, and will likely scareoff business, Vedomosti daily reports. It may affect theattractiveness of Cyprus for the Russian companies. Cypruscurrently ranks as the largest source of foreign direct investmentinto Russia, while the money Russia receives is largely of Russianorigin.Cyprus has been in talks with the EU and Russia on a 17 billioneuros rescue package that would recapitalize its oversized bankingsector and also aid debt and government expenses, Reuters reports.EU states’ finance ministers are due to rule a bailout decision forCyprus by the end of March.

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Russia may lose over $50 billion should Cyprus default

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